1031 exchange in
Connecticut.

Does Connecticut follow federal 1031 rules?

Connecticut conforms to federal 1031. No clawback.

Connecticut capital gains tax structure

Connecticut taxes capital gains at ordinary income rates (top bracket around 6.99% in 2026).

Connecticut runs a graduated 3-7% bracket structure with a top rate of 6.99% kicking in at roughly $500K of taxable income for joint filers. Capital gains are taxed at ordinary income rates with no preferential long-term rate. CT also imposes a separate 7% nonresident capital gains tax on net capital gains from sales of CT real property by nonresident individuals (via Form 394NR), capped at 5% of federal AGI — relevant for any out-of-state seller. Estimated payments quarterly when CT liability exceeds $1,000. The Real Estate Conveyance Tax is the meaningful CRE friction: 0.75% state on first $800K of sales price, 1.25% on the portion above $800K (residential and commercial); plus municipal conveyance of 0.25% in most municipalities, doubled to 0.5% in designated 'targeted communities.'

Federal tax treatment of a successful 1031 is deferral of capital gain and unrecaptured Section 1250 depreciation recapture (federally taxed at a maximum 25% when eventually recognized). Connecticut's state treatment sits on top of those federal rates.

Non-resident withholding in Connecticut

Connecticut imposes a Nonresident Capital Gains Tax via Form 394NR on net capital gains from sales of CT real property by nonresident individuals. The rate is 7% of the net capital gain, capped at 5% of federal AGI. For a 1031 deferred exchange, the federally-deferred gain is similarly deferred for CT purposes — file Form 394NR with appropriate exchange documentation to establish the deferral. Note that this is a return-filed tax, not a closing-time withholding regime — there is no QI withholding holdback at closing analogous to CA Form 593 or NJ GIT/REP-3. Out-of-state sellers must file the 394NR for the year of the relinquished sale even if the gain is deferred.

Common 1031 replacement strategies in Connecticut

Connecticut 1031 strategies fragment by metro. Stamford office is a generational distress story — Class A vacancy north of 30%, hedge-fund and finance-corridor demand bifurcated between trophy and obsolete product. Don't 1031 into CT office unless you have a specific value-add or change-of-use thesis. Hartford insurance-corporate-tenant retail and small-bay industrial trades 6.5-7.5% on stabilized credit-tenant product — steady yield, no growth. New Haven Yale-anchored eds-and-meds (medical office, lab/flex around the Yale-New Haven Hospital ecosystem) is the most credible institutional CT story, with cap rates in the 5.5-6.5% band on credit-tenant medical. Class B multifamily statewide runs 6-7.5% with rent-control proposals at the legislative level adding regulatory uncertainty. Bridgeport is a value market with execution risk — drive every property and meet every PM before bidding.

Top Connecticut CRE markets for 1031 buyers

Hartford

Insurance-corporate tenancy (Aetna/CVS Health, Travelers, The Hartford, Cigna) anchors the office and supporting retail base. Hartford CBD office vacancy pushed above 22% post-2020 and the right-sizing trend hasn't reversed; office is a tenant's market. NNN retail and small-bay industrial in the Hartford suburbs (West Hartford, Bloomfield, Manchester) trade 6.5-7.5% on credit-tenant stabilized product. Steady-yield market for 1031 capital that wants insurance-corporate credit exposure without the Stamford office distress.

Stamford

Hedge-fund and finance-corridor metro with generational office distress. Class A office vacancy averages roughly 31% across asset classes, with Class A asking rents around $41/SF in Stamford and Greenwich CBDs. The bifurcation: trophy product (Building & Land Technology's Harbor Point, recent renovations on Tresser Boulevard) holds tenants; obsolete 1980s glass-box towers face structural obsolescence. Class A multifamily at Harbor Point and downtown Stamford trades 4.75-5.5% caps. Don't buy CT office in a 1031 unless you have a specific repositioning thesis.

New Haven

Yale-anchored eds-and-meds market. Yale-New Haven Hospital and the broader Yale ecosystem support medical office, lab/flex, and surrounding retail demand. Credit-tenant medical office in the Yale-NHH orbit trades 5.5-6.5% caps; Class B multifamily holds 6-7%. The most credible CT institutional 1031 story right now — eds-and-meds tenancy is the only credit story in the state that's actively expanding rather than contracting.

Bridgeport

Value market with execution risk. Class B/C multifamily trades 7-9% with thin transactional volume and meaningful PM/management challenges. The city has been on a long economic-redevelopment glide path that hasn't fully landed. NNN retail and small-bay industrial along I-95 trade 7-8% on credit-tenant stabilized product. Drive every property and vet the PM in person before bidding — Bridgeport is not a market for out-of-state buyers running pro formas off OMs.

Local counsel, recording, and filing in Connecticut

Connecticut requires a CT-licensed attorney to conduct most real estate closings — it's one of a handful of 'attorney states' where title-company-only closings are not standard. Budget the attorney fee accordingly. Recording is by municipality (town clerk), not by county — CT has no functioning county-level recording system. Each town has its own recording quirks, fee schedules, and sometimes idiosyncratic indexing. For Stamford, Greenwich, and lower-Fairfield-County deals, retain Stamford-experienced CT counsel familiar with hedge-fund seller dynamics and the Greenwich/New Canaan luxury-residential overlap that can affect commercial underwriting.

Common mistakes in Connecticut 1031 exchanges

• Forgetting the conveyance tax on both legs of a CT 1031. CT's state conveyance tax (0.75% to $800K, 1.25% above) plus municipal conveyance (0.25%, sometimes 0.5% in targeted communities) applies to the closing of any deed transfer — including both the relinquished sale and the replacement acquisition if either is in CT. There is no 1031 exemption from conveyance tax. On a $5M Stamford acquisition that's roughly $87K-100K in conveyance tax, due at closing on top of standard closing costs. Out-of-state buyers using stale closing-cost models routinely understate this.
• Trying to dodge the conveyance tax with an entity-level transfer. If you transfer a controlling interest in an entity that owns CT real property valued at $2,000+, CT's Controlling Interest Transfer Tax (1.11% of the present true and actual value of the underlying CT real property) applies — explicitly designed to backstop conveyance-tax avoidance. Out-of-state attorneys structuring entity-level dispositions to skip the deed-level conveyance tax often get blindsided. The 1.11% controlling-interest rate may or may not be cheaper than the deed-level 0.75-1.25% depending on structure; model both before structuring.
• Buying Stamford office in a 1031 without a repositioning thesis. Stamford Class A office vacancy averages around 31% with no near-term demand catalyst. 'Cheap' office cap rates that look like 8-10% are pricing in real obsolescence — not yield. If you 1031 into CT office without a clear value-add, change-of-use, or specialty-tenant repositioning plan, you're catching a falling knife. Most credible CT 1031 office bets right now are conversion plays (office-to-multifamily, office-to-lab) that require specialized capital, not passive 1031 investors.

What to do if you're starting a Connecticut-source 1031

1. Engage a Qualified Intermediary before the downleg closes. Your QI cannot be a disqualified person (attorney, CPA, or real estate agent who has represented you in the last two years).
2. Confirm state conformance and any clawback or withholding filings with a Connecticut-licensed CPA.
3. Identify replacement property within 45 days in writing, delivered to your QI, under the Three-Property Rule or one of the alternative identification rules.
4. Close on replacement within 180 days of the downleg closing or by your federal tax-return due date (with extensions), whichever is earlier.
5. File Form 8824 with your federal return reporting the exchange. File any required Connecticut state forms for the year, including any clawback or withholding-exemption filings.

FAQ: 1031 exchanges in Connecticut

Does Connecticut's conveyance tax apply to a 1031 exchange?

Yes. Connecticut's state conveyance tax (0.75% on the first $800K of sales price, 1.25% on the portion above) and municipal conveyance tax (0.25% standard, up to 0.5% in designated 'targeted communities') apply to any deed transfer, including both legs of a 1031 exchange. There is no 1031 exemption. On a $5M Stamford 1031 acquisition, expect roughly $80-100K in combined conveyance tax at closing — model it explicitly into your closing costs.

What's the controlling interest transfer tax and when does it apply?

CT's Controlling Interest Transfer Tax (CITT) applies to the sale or transfer of a controlling interest in any entity (corporation, partnership, LLC, trust) that owns CT real property valued at $2,000 or more. The rate is 1.11% of the present true and actual value of the underlying CT real property. The CITT was designed to backstop deed-level conveyance tax avoidance — if you try to sell CT real property through an entity-interest transfer to skip the deed-level tax, the CITT catches you anyway. Get CT counsel to model both options before structuring.

Does Connecticut have non-resident withholding on real estate sales?

Sort of — CT has a Nonresident Capital Gains Tax (Form 394NR) imposed at 7% of net capital gain (capped at 5% of federal AGI), but it's a return-filed obligation rather than a closing-time withholding holdback. There is no QI withholding analogous to CA Form 593 or NJ GIT/REP-3. Non-resident sellers file Form 394NR after the close. For a 1031 deferred exchange, the gain is similarly deferred for CT purposes — file the 394NR with appropriate exchange documentation establishing the deferral.

Is Stamford office a credible 1031 destination right now?

Generally no, unless you have a specific repositioning or change-of-use thesis. Class A vacancy averages roughly 31% with no near-term demand catalyst, and the bifurcation between trophy product and obsolete 1980s glass-box towers is widening. Cap rates that look like 8-10% on 'value' office are pricing in real obsolescence, not yield. The credible CT office 1031 plays right now are office-to-multifamily and office-to-lab conversions that require specialized capital and entitlement work — not passive yield-focused 1031 buyers.

Why do New Haven medical-office assets trade tighter than the rest of CT?

Yale-New Haven Hospital and the broader Yale ecosystem (Yale School of Medicine, Smilow Cancer Center, Yale-NHH affiliated practices) anchor a credible eds-and-meds credit-tenant story that's actively expanding. Credit-tenant medical office in the Yale-NHH orbit trades 5.5-6.5% caps — meaningfully tighter than Hartford or Stamford office and tighter than CT multifamily. It's the most credible CT institutional 1031 story right now, and one of the few state credit narratives that's growing rather than contracting.

Are Connecticut closings handled by attorneys or title companies?

Attorneys. Connecticut is one of a handful of states where most real estate closings — including commercial — must be conducted by a CT-licensed attorney. Title-company-only closings are not standard practice here. Recording is by municipality (town clerk), not by county; CT has no functioning county-level recording system. Each town has its own recording fee schedule and indexing quirks. Budget for the CT attorney fee on both legs of any 1031, and use CT counsel familiar with the specific town clerk for your replacement property.